US federal investigators are probing whether Morgan Stanley misled investors about mortgage derivative products it helped create and sometimes bet against, The Wall Street Journal said, citing people familiar with the matter.
Shares in the bank fell more than 3 per cent to $27.38 in premarket trading on Wednesday.
Morgan Stanley Chief Executive James Gorman told media in Tokyo he had no knowledge of any federal investigation into his firm. “We have not been contacted by the Justice Department about any transactions that were raised in The Wall Street Journal article,” Gorman said.
The report comes less than a month after Morgan Stanley rival Goldman Sachs was charged with fraud over its marketing of a subprime mortgage product known as ABACUS.
Morgan Stanley arranged and marketed to investors pools of bond-related investments called collateralised debt obligations (CDOs), and its trading desk at times placed bets that the value of the CDOs would fall. Investigators are examining whether Morgan Stanley made proper representations about its roles in the deals, WSJ said.